This is part of our Car Buyer Glossary Series that breaks down all the terms you need to know if you’re buying a new or used car from a dealership.
What is the difference between MSRP and supplement label?
Great question. From a car buyer’s perspective, neither of these things should be a factor in either of your negotiations. The manufacturer’s suggested retail price is technically what the manufacturer thinks the dealer should charge for the car, but as you well know, in the real world, they sell cars for anything the buyer can get the dealer’s approval for. Whether it’s much lower or much higher than the MSRP due to supply and demand, as well as the buyer’s negotiation skills.
With this in mind, a merchant supplement label is something a merchant adds, usually next to a Monroney label that lists MSRP, destination fees, and other useful information. The appendix shows the parts or services that the dealer added to the vehicle before it was put up for sale. Parts can be running boards or floor mats, and services can be a protective coating application or the addition of a security system. This is also where the trader will list any profit margin.
What is a profit trader?
This is an adjustment to the asking price made by the dealer that reflects either real-world demand for a super hot car (or even somewhat tepid vehicles in the Covid era), or a goal-moving tactic in negotiations. There is nothing to stop dealers from coding cars, but manufacturers usually frown at this and can even take various steps to discourage it.
What do you mean by transfer goal?
Well, regardless of what is actually listed on the attached label, there is no law as to how much a merchant can charge for a particular line item or markup. They can claim a set of driver boards is worth $200,000 if they want (accessories are often a major source of profit for dealers and sales). The dealer’s price can be reasonable or ridiculous. On some level, it doesn’t matter, unless you blindly pay the total price listed on the extra label.
The psychological tactic here is that the higher the starting point in negotiations, the more likely you are to believe that the price you can negotiate is fair. If the total profit of the trader is $5,000, and you cut $7,000, it looks like a victory. But if the actual value of the car is $12,000 less than the dealer’s asking price, based on real-world transaction data at your location, you think you got a good deal but you’re actually just taken for a ride.
So, the merchant extension is basically fake?
Well, not really – but it depends. This seems like an easy answer, but that’s only because proxy add-ons are such an easy topic to use. The physical accessories the dealer adds have intrinsic value – that value is all that you and the dealer agree on. But some of the items on the supplement label can be fake. Car wash fare before delivery? A merchant shouldn’t pass it on to you – it’s part of doing business! This is like the dealer charging you for the gas you spent driving to the dealership in the morning.
We can’t tell you the value of a particular accessory item, or whether it’s bogus, so you’ll have to use common sense here. And remember not to get caught up in haggling over the value of the roof rack the dealer added and ignoring the overall price picture. If you save $50 on the top shelf but get an extra $2,000 elsewhere in the deal, you’ve fallen into the merchant’s psychological trick.
We’re not saying that you can negotiate every car, no matter how popular it is, for a lower price than what is listed on the accessory label. Some very limited production cars in high demand may legitimately sell the total of what is included in the appendix, including excess (or, again, cars sold during situations of low supply). But your best bet is to do your homework and come up with a different reference point on which to base your negotiations.
So what price should I offer the merchant?
This is a whole bunch of worms, but the quick answer is that you’ll want to compare agent bill pricing with real-world sales information. You can view and compare invoice prices using Auto blogs Compare Auto Tool.
You’ll use these values to determine the “walk away” number – the price you won’t exceed to buy the car. Now, you’ll want to take into account the additional equipment included in the supplement, but you can definitely ignore the inflated prices listed next to it. Some search sites will list prices for factory-installed options, but dealer-installed options are kind of a wild west—anything goes. So keep the totality of circumstances in mind, then use your best judgment to set your budget.
And remember: a car dealer is a company that expects to make a profit, and that’s fair. But there is no reason for you to pay more which is fair. Good luck shopping!